Card Range To Study

85 Cards in this Set

Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.

opportunity cost

Opportunity Cost: The best alternative that we forego, or give up, when we make a choice or a decision is called the opportunity cost of that decision

scarce

Scarce simply means “limited,” i.e. time

sunk costs

Marginalism is weighing the costs and benefits that arise from a decision

marginal cost

Marginal cost is the cost of producing one more unit of output.

efficient market

Efficient markets are markets where any profit opportunities are eliminated almost instantaneously

microeconomics

Microeconomics deals with the functioning of individual industries and the behavior of individual economic decision-making units: business firms and households.

macroeconomics

Macroeconomics looks at the economy as a whole (the aggregate). It essentially analyzes the “forest.”

positive economics

Positive economics attempts to understand behavior and the operation of economic systems without making judgments about whether the outcomes are good or bad.

normative economics (policy economics)

Normative economics looks at the outcomes of economic behavior and asks whether they are good or bad and whether they can be made better; it involves judgments and prescriptions for courses of action; often referred to as policy economics

Descriptive economics

Descriptive economics is simply the compilation of data that describe phenomena and facts.

economic theory

An economic theory is a statement or set of related statements about cause and effect, action and reaction

Law of Demand

Law of Demand: When the price of a product rises, people tend to buy less of it; when the price of a product falls, they tend to buy more.

model

A model is a formal statement of a theory; it is usually a mathematical statement of a presumed relationship between two or more variables

variable

A variable is a measure that can change from time to time or from observation to observation

Ockham's razor

the principle that irrelevant detail should be cut away is Ockham’s razor

ceteris paribus

All Else Equal: Ceteris Paribus is the process by which we isolate the impact of one single factor, which is helpful for analysis and comparison of economic theories, predictions, etc…

post hoc fallacy

Post hoc fallacy: occurs when two variables are said to be correlated and it is assumed that one is causal; however, correlation does not imply causation.

fallacy of composition

The fallacy of composition is the erroneous belief that what is true for a part is necessarily true for the whole.

empirical economics

Empirical economics is the collection and use of data to test economic theories.

economic growth

Economic growth is an increase in the total output of an economy

Criteria for judging economic outcomes

1) Efficiency, 2) Equity, 3) Growth, 4) Stability

efficiency

Efficiency means allocative efficiency. An efficient economy is one that produces what people want at the least possible cost.

equity

Equity simply refers to the fairness of a policy. It is malleable, subjective and indefinite.

capital

Capital refers to things that are themselves produced and that are then used in the production of other goods and services.

stability

Stability is a condition in which national output is growing steadily, with low inflation and full employment of resources.

factors of production (factors)

Factors of production (or factors) are the inputs into the process of production. Another word for resources

production

Production is the process that transforms scarce resources into useful goods and services.

inputs (resources)

Inputs or resources are anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants

The theory of comparative advantage states that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers

absolute advantage

A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources.

comparative advantage

A producer has a comparative advantage over another in the production of a good or service if it can produce the good or service at a lower opportunity cost.

consumer goods

Consumer goods are goods produced for present consumption.

investment

The process of using resources to produce new capital is investment.

production possibilities frontier

A simple graphic device called the production possibility frontier illustrates the principles of constrained choice, opportunity cost, and scarcity that shows all the combinations of goods and services that can be produced if all society’s resources are used efficiently.

law of increasing opportunity cost

the law of increasing opportunity cost states that the opportunity cost of producing more of a certain good increases as one moves along the ppf.

Command Economy

Command Economy: an economy in which a central government either directly or indirectly sets output targets, incomes, and prices

Laissez-Faire Economics

Laissez-Faire Economies: The Free Market: literally from the French, “allow them to do,” an economy in which individual people and firms pursue their own self-interests without any central direction or regulation

market

Market: the institution through which buyers and sellers interact and engage in exchange.

consumer sovereignty

Consumer sovereignty: the idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).

firm

A firm is an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy. Firms make decisions in order to maximize profits.

entrepreneur

An entrepreneur is a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.

household

Households are the consuming units in an economy.

product market (output market)

Product or output markets are the markets in which goods and services are exchanged

input market (factor market)

Input or factor markets are the markets in which the resources used to produce products are exchanged

labor market

The labor market is the input/factor market in which households supply work for wages to firms that demand labor

capital market

The capital market is the input/factor market in which households supply their savings, for interest or for claims to future profits, t firms that demand funds to buy capital goods.

land market

The land market is the input/factor market in which households supply land or other property in exchange for rent.

factors of production

The factors of production are the inputs into the production process. Land, labor, and capital are the three key factors of production

quantity demanded

Quantity demanded is the amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price

demand schedule

A demand schedule is a table showing how much of a give product a household would be willing to buy at different prices

demand curve

A demand curve is a graph illustrating how much of a given product a household would be willing to buy at different prices

utility

utility is the happiness or satisfaction resulting from consumption

law of diminishing marginal utility

The law of diminishing marginal utility describes how each successive unit of a good is worth less utility once a certain point is reached

Law of Demand

The law of demand describes the negative relationship between price and quantity demanded: As price rises, quantity demanded decreases.

income

Income is the sum of all a household’s wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time

wealth (net worth)

Wealth or net worth is the total value of what a household owns minus what it owes. It is a stock measure

normal good

Normal goods are goods for which demand goes up when income is higher and for which demand goes down when income is lower

inferior good

Inferior goods are goods for which demand tends to fall when income rises.

substitutes

Substitutes are goods that can serve as replacements for one another; when the price of one increases, the demand for the other rises

complements (complimentary goods)

Complements or complimentary goods are goods that “go together;” a decrease in the price of one results in an increase in demand for the other, and vice versa.

shift of a demand curve

A shift of a demand curve is the change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions.

movement along a demand curve

Movement along a demand curve is the change in quantity demanded brought about by a change in price.

market demand

Market demand is the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service. Its shape is characterized by all of its associated individual demand curves.

profit

Profit is the difference between revenues and costs.

quantity supplied

Quantity supplied is the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period

supply schedule

A supply schedule is a table showing how much of a product firms will sell at different prices.

law of supply

The law of supply characterizes the positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied

supply curve

A supply curve is a graph illustrating how much of a product a firm will sell at different prices.

movement along a supply curve

Movement along a supply curve characterizes the change in quantity supplied brought about by a change in price. That is, a change in a price of a good or service results in movement.

shift of a supply curve

A shift of a supply curve describes the change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the original conditions

market supply

Market supply is the sum of all that is supplied each period by all producers of a single product.

excess demand (shortage)

The quantity demanded exceeds the quantity supplied at the current price, a situation called excess demand or shortage

excess supply (surplus)

The quantity supplied exceeds the quantity demanded at the current price, a situation called excess supply or surplus

equilibrium

The quantity supplied equals the quantity demanded at the current price, a situation called equilibrium

price rationing

Price rationing is the process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied

demand determined

If a product is in strictly scarce supply, its price is said to be demand determined.

price ceiling

A price ceiling is a maximum price that sellers may charge for a good, usually set by the government

queuing

Queuing is waiting in line as a means of distributing goods and services; a non-price rationing mechanism

favored customers

Favored Customers are those who receive special treatment from dealers during situations of excess demand

ration coupons

Ration coupons are tickets or coupons that entitle individuals to purchase a certain amount of a given product per month

black market

The black market is a market in which illegal trading takes place at market-determined prices

price floor

A price floor is a minimum price below which exchange is not permitted